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Pranab brings new twist to taxation of indirect transfers
May, 08th 2012

If you thought that Finance Minister, Mr Pranab Mukherjee's statement on Monday regarding retrospective clarificatory' amendments would bring cheer for telecom major Vodafone, think again.

Nothing changes for Vodafone on account of Mr Mukherjee's remarks in Lok Sabha on the retrospective amendments, official sources said.

Simply put, top Finance Ministry officials do not think that the Minister has through today's statements opened any window of opportunity for Vodafone in the controversial tax issue related to its $11.2-billion deal with Hutchison Whampao in 2007.

The retrospective clarificatory amendments now under the consideration of Parliament will not be used to reopen any cases where assessment orders have already been finalised, Mr Mukherjee said while moving the Finance Bill 2012 for consideration of the Lower House today.

He also said that the Central Board of Direct Taxes (CBDT) has been asked to issue a policy circular to clearly state this position after the passage of the Finance Bill.

There are mixed views among tax experts on whether these remarks would lead to Vodafone coming under the taxman's lens post the retrospective amendments. Mr Mukherjee reiterated the Government stance that the clarificatory amendments do not override the provisions of the double tax avoidance agreement which India has with 82 countries. It would impact those cases where the transaction has been routed through low tax or no tax countries with whom India does not have a DTAA, he said.

The Vodafone tax matter is strictly not a treaty case, say tax experts. It now remains to be seen whether the policy circular to be issued by CBDT will cover TDS orders as part of the assessment orders, Mr Aseem Chawla, Partner, Amarchand & Mangaldas, said.

Mr Ved Jain, who heads Assocham's direct taxes committee, sees the Finance Minister's statements as some relief for Vodafone type cases.

Mr Dinesh Kanabar, Deputy CEO and Chairman Tax, KPMG India, said that the statement made by the Finance Minister that assessments which have attained finality will not be reopened is very interesting.

The issue as to whether or not the transaction is taxable has attained finality qua Vodafone having regard to the judgment of the Supreme Court. In that light it remains to be seen as to whether the chapter would be closed vis--vis Vodafone both on the withholding matter as well as the substantive liability on the taxability of the transaction.

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